Executive Briefings

SPECIAL ISSUE: GLOBAL SUPPLY CHAIN PARTNERSHIPS

By: Robert J. Bowman 07.01.2002

Palm Inc.: Less Guesswork, More Hard Data in Planning Process

Selling a hot high-tech consumer product is a bit like a high-wire act. Make too little, and you won't satisfy short-lived demand. Make too much, and you're stuck with obsolete inventory when the next model comes out. Either way, you're in for a fall.

Now, toss in an initial public offering, with the newly independent company forced to acquire a host of information systems, and you have a sense of the challenge that was confronting Palm Inc.

In March 2000, the maker of handheld devices and mobile equipment found itself free of former parent 3Com Corp. Although its brand had been well-established under 3Com and its previous owner, U.S. Robotics, Palm faced stiff competition from several emerging players in the handheld market. Some of them had licensed Palm's operating system, yet added enough distinctive features to threaten its leadership position in devices.

For internal enterprise software, Santa Clara, Calif.-based Palm had been using the popular R/3 product of SAP AG since 1998. R/3 gave it the ability to manage sales, financials and procurement from a single core system. What it didn't have was a means of molding an accurate demand forecast, based on visibility of inventory and goods in production. Complicating matters was the fact that Palm was not itself a manufacturer - it relied on third-parties to make the product.

Once again, Palm looked to SAP for help. Shortly after the IPO, it began implementing modules of the vendor's mySAP Supply Chain Management (SCM) suite of software. According to Angel Mendez, Palm's senior vice president of global operations, there was no time to lose. In terms of systems, the separation from 3Com had created "a burning platform." What's more, Palm needed a way to manage dizzying growth in product lines, with unit shipments in 2001 rising by 75 percent over the prior year.

Palm was already suffering from the lack of crucial controls. In the first part of 2001, it saw a drop in profitability, caused in part by the need to pay premium prices for scarce components. Then, later in the year,, when demand slumped, it became saddled with excess inventory.

Palm was looking for faster time to market, better management of product lifecycles, and tighter integration with its supplier base. To achieve those goals, it turned to SAP's Advanced Planner and Optimizer (APO). Designed especially for companies employing contract manufacturers, the tool was easily integrated into Palm's system for collaborative account planning, which had been put into place several months earlier.

Palm went live with SAP APO in July 2001. The first part of the module to be deployed was supply network planning, which allowed the user to model its supply chain, then produce a supply plan based on actual demand signals. The tool helped take the guesswork out of Palm's orders to its suppliers, says Colleen Berube, senior director of enterprise applications.

The second piece was available-to-promise (ATP), which made it possible for Palm to commit to customer orders. That required visibility into its inventory and overall product flow - in this case, up to 18 months of future supply. ATP, says Mendez, allows Palm to automate the supplying of product to its many customers, each of which has some unique set of needs or constraints. Palm's sales channels include big electronics retailers like Circuit City and CompUSA, resellers such as Ingram Micro, and direct via the internet.

Both enterprise and supply-chain software require big changes in internal procedures and corporate culture. But Palm wasn't bound by tradition, says Gregory Mekjian, vice president of supply-chain management with SAP in Detroit, Mich. As a new company, selling cutting-edge products with a high rate of obsolescence, it was used to embracing new technology. "They were trying to create a culture," Mekjian says.

It took less than a year to implement the APO modules. And the results, derived from SAP's tool along with substantial business-process change, were immediate. Palm has reduced its planning cycle by 50 percent, increased inventory turns from six to 16, reduced channel inventory by 32 percent, and lowered its cash-to-cash cycle time from 23 to 14 days. At the same time, customer-service levels have remained steady, and stockouts have decreased.

Future applications could include stronger collaboration with customers and suppliers, "what-if" scenarios for better sales and operations planning, and postponement strategies for tailoring product to individual markets. All will require continuing process change and flexibility within Palm. As Mendez puts it: "Just by plugging it in, life doesn't get better."

Selling a hot high-tech consumer product is a bit like a high-wire act. Make too little, and you won't satisfy short-lived demand. Make too much, and you're stuck with obsolete inventory when the next model comes out. Either way, you're in for a fall.

Now, toss in an initial public offering, with the newly independent company forced to acquire a host of information systems, and you have a sense of the challenge that was confronting Palm Inc.

In March 2000, the maker of handheld devices and mobile equipment found itself free of former parent 3Com Corp. Although its brand had been well-established under 3Com and its previous owner, U.S. Robotics, Palm faced stiff competition from several emerging players in the handheld market. Some of them had licensed Palm's operating system, yet added enough distinctive features to threaten its leadership position in devices.

For internal enterprise software, Santa Clara, Calif.-based Palm had been using the popular R/3 product of SAP AG since 1998. R/3 gave it the ability to manage sales, financials and procurement from a single core system. What it didn't have was a means of molding an accurate demand forecast, based on visibility of inventory and goods in production. Complicating matters was the fact that Palm was not itself a manufacturer - it relied on third-parties to make the product.

Once again, Palm looked to SAP for help. Shortly after the IPO, it began implementing modules of the vendor's mySAP Supply Chain Management (SCM) suite of software. According to Angel Mendez, Palm's senior vice president of global operations, there was no time to lose. In terms of systems, the separation from 3Com had created "a burning platform." What's more, Palm needed a way to manage dizzying growth in product lines, with unit shipments in 2001 rising by 75 percent over the prior year.

Palm was already suffering from the lack of crucial controls. In the first part of 2001, it saw a drop in profitability, caused in part by the need to pay premium prices for scarce components. Then, later in the year,, when demand slumped, it became saddled with excess inventory.

Palm was looking for faster time to market, better management of product lifecycles, and tighter integration with its supplier base. To achieve those goals, it turned to SAP's Advanced Planner and Optimizer (APO). Designed especially for companies employing contract manufacturers, the tool was easily integrated into Palm's system for collaborative account planning, which had been put into place several months earlier.

Palm went live with SAP APO in July 2001. The first part of the module to be deployed was supply network planning, which allowed the user to model its supply chain, then produce a supply plan based on actual demand signals. The tool helped take the guesswork out of Palm's orders to its suppliers, says Colleen Berube, senior director of enterprise applications.

The second piece was available-to-promise (ATP), which made it possible for Palm to commit to customer orders. That required visibility into its inventory and overall product flow - in this case, up to 18 months of future supply. ATP, says Mendez, allows Palm to automate the supplying of product to its many customers, each of which has some unique set of needs or constraints. Palm's sales channels include big electronics retailers like Circuit City and CompUSA, resellers such as Ingram Micro, and direct via the internet.

Both enterprise and supply-chain software require big changes in internal procedures and corporate culture. But Palm wasn't bound by tradition, says Gregory Mekjian, vice president of supply-chain management with SAP in Detroit, Mich. As a new company, selling cutting-edge products with a high rate of obsolescence, it was used to embracing new technology. "They were trying to create a culture," Mekjian says.

It took less than a year to implement the APO modules. And the results, derived from SAP's tool along with substantial business-process change, were immediate. Palm has reduced its planning cycle by 50 percent, increased inventory turns from six to 16, reduced channel inventory by 32 percent, and lowered its cash-to-cash cycle time from 23 to 14 days. At the same time, customer-service levels have remained steady, and stockouts have decreased.

Future applications could include stronger collaboration with customers and suppliers, "what-if" scenarios for better sales and operations planning, and postponement strategies for tailoring product to individual markets. All will require continuing process change and flexibility within Palm. As Mendez puts it: "Just by plugging it in, life doesn't get better."